Sherwin-Williams: Will The Big Get Bigger?
Feb-2022 (2021-Q3 data)
The Story
Sherwin-Williams is the largest paint and coating manufacturer in the world. We extrapolate its past 10-year growth into the future to determine its current value in this valuation.
The Assumptions
Base year Years 1-4 After year 5 Link to story
After-tax income growth 19.11% 2.50% Grows year-after-year similar to the past 10 years with goodwill netted out from the acquisition costs.
Reinvestment Rate (12.85%) 50.36% 16.64% Use the same reinvestment rate as the past 10 years aggregate with acquisitions taken into account.
Risk-free rate 1.50% 1.70%➡2.30% 2.50% Starts at 1.5% all the way to 2.5% in the terminal year.
Cost of Capital 5.75%➡6.75% 6.95% Next year: Calculate from current year's financials. After that: Risk-free rate + Sherwin Williams' equity risk premium
ROIC 16.51% 17.89%➡21.79% 15.02%
The Cash Flows
After-tax EBIT Reinvestment FCFF Cost of Capital PV(FCFF) Implied ROIC
Base year (2021) $2,478 ($318) 16.51%
1 (2022) $2,952 $1,486 $1,465 5.75% $1,386 17.89%
2 (2023) $3,516 $1,770 $1,745 6.35% $1,552 19.24%
3 (2024) $4,188 $2,109 $2,079 6.55% $1,735 20.55%
4 (2025) $4,988 $2,512 $2,476 6.75% $1,935 21.79%
5 (2026) $5,941 $2,992 $2,949 6.95% $2,155 22.95%
Terminal year $6,090 $1,014 $5,076 6.95% 15.02%
The Value
Terminal cash flow $5,076
Terminal cost of capital 6.95%
Terminal value $113,943
PV (Terminal Value) $83,268
PV (CF in high-growth period) $8,763
Sum of PV $92,030
- Adjustment for distress $0 Probability of failure: 0.00%
- Debt & Minority Interests $12,636 Based on Baa2 rating from Moody's
+ Cash & Other Non-operating assets $313
Value of equity $79,708
- Value of equity options $147
Number of shares 262.20 million
Value per share $295.85 Stock was trading at $280.51
In millions USD except Value-per-share.